Nobel prize-winning economist Paul Krugman is calling for better co-ordinated aid to cope with runaway food prices, warning the world was vulnerable to a repeat of the 2008 agricultural market spike.
Speaking at a seminar, Krugman said the reasons for last year’s food price rise had now been masked by the economic and financial downturn, adding the lack of physical stockpiling made it clear that speculation had not been the main cause.
“We are wrong to have turned attention away from the food crisis,” he said. “Volatility is a clear problem … and we are still extremely vulnerable to episodes of this type.”
“All indications are that the food crisis of 2008 was a dress rehearsal for future crises. We had better have some mechanism in place to deal with this,” Krugman said.
In the first half of 2008, key staple food sectors such as cereals, meat and dairy notched up double-digit price rises.
Although global markets had since retreated sharply, prices of basic foodstuffs were still higher in real terms than at the start of this decade, Krugman added.
A better approach to dealing with the problem, which he said had caused “an extraordinary human impact,” would be to invest more in research and development, future food production, and also to synchronize somehow the various financial aid packages handed out by developed countries to the struggling Third World.
“One thing we can do is invest in future food production. It’s beginning to look as if we seriously under-invested and we need to play catch-up,” Krugman said.
“There was scrambling to provide financial aid … it certainly helped. But it was a close thing, there was no regularized system … the ‘ad hoc’ nature of the arrangements was problematic,” he said.
And last year’s rise in food prices, he said, could not be seen as merely caused by international trader speculation. Other policies had been “major aggravating factors.”
“It’s clear there was significant pressure on food prices because of badly conceived biofuels policies,” he said.
“When arable land is diverted into non-agricultural uses … it has the effect of reducing incomes of those who are already at the bottom end of the scale.”